Our market development work is important to achieving our statutory objective to promote competition in, reliable supply by and the efficient operation of the electricity industry for the long-term benefit of consumers.

If an anomalous event or outcome occurs in the market or the broader electricity sector, we investigate it to determine the causes and whether something can or should be done to prevent such an event or outcome from occurring again.

Progress update on TPM review

Since June 2018, we have been preparing parts of a new TPM guidelines consultation package. The package will include our proposal for change, the draft TPM Guidelines, modelling showing the effect of the change on customers’ charges, and a cost benefit analysis (CBA) of the proposal.

We are making good progress on the CBA. We are also working out the effect of the proposed change for customers and consumers throughout the country. Once the CBA is finalised we’ll be in a position to complete the finer details of our proposal, and release it for consultation. We also continue to discuss some details of our approach with Transpower and the Commerce Commission.

The direction of our proposal is as we outlined in our June 2018 update. In essence, the main change is we intend to propose to replace two types of charges in the current TPM with two different charges. We think these changes will lead to a more efficient outcome that will be in the long-term benefit of consumers.

Out:

the existing interconnection charge (or RCPD charge), and

the HVDC charge (under which South Island generators pay the costs of the link between North and South Island).

In: Two charges:

a benefit-based charge for new investment and for future charges on selected existing major investments, and

a residual charge to cover the costs of the remaining former investments that are not yet fully recovered and other costs.

Staying (in a similar form to now):

connection charge

an expanded prudent discount policy.

There are a lot of details sitting behind this that will be released in the consultation package including additional components. We also intend to propose a price cap to soften any price increases for some consumers.

We are committed to a thorough consultation process

We are aiming to wrap up our work to present it for consultation with stakeholders around June 2019 and will advise of the date closer to the time. We regard this as a major consultation exercise and will be preparing an engagement process so that affected parties have a good opportunity to understand our proposal, our reasons, the impact on them and on others, and the long-term impact on consumers.

We know most of Transpower’s transmission customers continue to be very interested in our proposed changes – as of course any change in the pricing methodology would divide up Transpower’s nearly $1 billion annual cost in a different way, meaning some customers pay more and others pay less than they do today.

The TPM review is a top priority

We continue to see TPM reform as extremely important. The long-running debate over the current TPM does not help provide certainty for any larger investor who wants to use or generate electricity.

We recognise that companies generally don’t want changes that could lead to them having to pay more. But we think there are some serious problems with the existing transmission pricing methodology and these problems will only get more pronounced over time.

For example, one problem is some customers can and do avoid transmission charges by reducing their electricity use at peak times or by adding embedded generation and using batteries, even where there is plenty of spare grid capacity. This has economic costs and this problem is likely to get worse with new technology. But it also means that others have to pay more, because the overall cost that must be covered is the same.

In many ways local generation and batteries are a good thing. And in some cases they might help Transpower avoid having to make investments, which would be a cost saving. We want to get the pricing methodology right so that batteries and local generation can help reduce transmission costs where they can, without pushing other grid costs onto others.